The softening in the labor market and the fears over the European sovereign debt crisis have finally affected the University of Michigan’s Consumer Sentiment Index. The preliminary reading from June showed sentiment falling from 79.3 in May to 74.1, its lowest level since December 2011. The Briefing.com consensus expected the index to decline to 77.0. Sentiment most likely would have dropped even more if oil and gas prices had not fallen substantially over the past few weeks.
The Expectations Index fell from 74.3 to 68.9 while the Present Conditions Index declined from 87.1 to 82.2. Both of those levels are at their lowest since December 2011. The respondents in the Conference Board’s Consumer Confidence Index have seemed to be aware of the weakening in the labor situation and the potential pitfalls from Europe for the past several months. That index has fallen each month since February. In contrast, prior to the June decline, consumer sentiment had risen steadily since August 2011. Consumption growth relies on income gains and not sentiment. As long as wages trend higher, consumption growth should follow.